That’s why you keep paying more at the checkout, even though inflation is falling

Although inflation in Germany fell to its lowest level in eight months at 7.4 percent in March according to the Federal Statistical Office (Destatis) and prices rose by only 0.8 percent compared to February, many people in Germany have significantly less money left in your wallet than these numbers suggest. Seven graphs show why.

1. Food and energy prices are actually falling

The main reason for falling inflation is food and energy prices. According to the latest Destatis data, butter now costs significantly less than at the beginning of the year; Milk, cheese and rolls level off at a high level.

The prices for electricity, natural gas and fresh water have also remained the same since the beginning of the year. Since March, the federal government’s price brakes have also been reducing costs. Light heating oil has been massively cheaper since October 2022.

Motorists also pay less for petrol and diesel than a year ago. That offsets the rising cost of repairs. The price increases for tickets in public transport are kept within limits and are likely to drop sharply with the introduction of the 49-euro ticket.

2. Prices for services continue to rise

The more expensive car repairs from the previous point already indicate why many people have to spend more money despite falling inflation: the prices for services continue to rise. From the hairdresser to dry cleaning, everyday little things are costing more and more.

One reason for the increase in the price of services: In order to compensate for the high inflation, wages are rising faster than they have been in decades. Especially in labour-intensive sectors such as the service sector, companies are now passing these costs on to customers. This is why costs are also rising in gastronomy, even though food prices are falling or staying the same.

3. Inflation is shifting

The so-called core inflation reflects the consequences of this development. It ignores the often sharply fluctuating price changes for food and energy. What remains are inflations that can be traced back to changes in the core of the German economy. When core inflation rises, price increases tend to persist.

After being well below headline inflation last year, core inflation rose to a multi-year high of 5.9 percent in March, while headline inflation eased. Both values ​​have been converging for around half a year.

4. Personal inflation may continue to rise

The data shows that there is no such thing as one inflation rate for everyone. The federal government’s inflation information provides an approximate value that reflects the price changes for everyone in Germany as accurately as possible. The extent to which inflation affects the individual depends on their living situation: those who live in a small city apartment and cycle to work feel the price reductions for energy and transport less than someone who lives in a country house and commutes 40 kilometers to work. For city dwellers too, however, inflation in leisure time, gastronomy and so on remains. This can increase his personal inflation rate, although the rate for Germany as a whole is falling.

However, the distribution of the burden is not all that one-sided: When petrol and energy prices soared a few months ago, rural residents suffered more from inflation than their fellow city dwellers. The prices for household and garden have also continued to rise recently. People outside of the city centers are particularly affected.

If you want to know exactly how your costs are changing, you can find out. The Federal Statistical Office offers one on its website inflation calculator with which everyone in Germany can calculate their personal inflation rate.

5. Inflation not over yet

The data illustrate a trend: Despite declining headline inflation, inflation has not yet come to a halt. Persistently high wage demands are likely to fuel core inflation further in the coming months. The danger of a wage-price spiral, in which price increases lead to wage increases and these lead to further price increases, remains.

Isabel Schnabel, German ECB director, warned in a Bloomberg interview in February not to take inflation below the two percent mark as a foregone conclusion. There is a risk of stubborn inflation: “We are still far from winning.” The latest data bears her out.